Glossary

Graham’s “net-net” strategy involves buying companies trading below their Net Current Asset Value (NCAV), which is: NCAV=CurrentAssets−TotalLiabilities. A stock is considered a “net-net” if its market capitalization is less than NCAV. This is a deep value strategy, assuming the company could be liquidated and still leave more than its market cap to shareholders.

Indicator for borrowing costs in the economy. Higher yields mean higher mortgage rates, loan rates and other borrowing costs for both businesses and consumers. A 10-year yield of 3% equals $30 per year return on every $1k invested in treasury bonds. If the yield is low companies can afford to borrow money to stay afloat.

1) Invest in new business opportunities

2) Expand operations

3) Buy back own shares

Management should always increase a company’s value for its shareholders by utilizing Retained Earnings in these ways. If they can’t only then should they pay out dividends.

The highest price of any given security within the last year (52 weeks from the time of reporting, not a calendar year)

Analysts’ prediction on where a stock’s price per share will be in the future. Ranging from “Low” to “High”, we want to look for a less extreme “Average”. If the current price is predicted to go up, we have an “Upside”, else a “Downside”. Currently: $3.63, in 12 months: ø $20.40 = +462.21% Upside

A term for the current price per share of a security that you have an option for, if the Strike Price is on a similar level.

Strike Price = Share Price

At-the-Market offering: a publicly traded company sells news shares directly into the market at the current price, gradually. The stock price usually doesn’t drop as much as with a more common ‘secondary offering’, which is a one-time event. ATM is revealed in S-3/ 8-K filings first and later in press releases

Buying more of a stock as it’s price decreases.

When a broad market index (S&P 500, Dow Jones, etc.) drops 20% or more for a sustained amount of time. Statistically, happens every 6-10 years with a median decline of 30-35%

A term derived from Poker describing a stock that is said to perform profitable in good and bad times.

A company’s total assets – it’s total liabilities. Compared to market value, it can indicate under- or overpricing. A share price can be higher than book value, since it doesn’t reflect intangible assets like patents, intellectual property, future profits etc.

A metric that compares the total market capitalization of a country’s stock market to its gross domestic product (GDP), used to assess whether the stock market is overvalued or undervalued relative to the size of the economy.

When a stock falls strongly for some time and appears to suddenly recover by a little bump. Retail investors think it hit the bottom and they can buy at a discount, expecting an upcoming rally, when in reality institutionales are offloading their shares to them.

Buybacks are so simple: it’s a way of distributing cash to shareholders. Think 3 people buying a franchise, the business grows and 1 wants to spend his shares of the earnings. The others wouldn’t establish a 100% dividend, instead they would buy a portion of the shares of the third. He could thus spend that money and the shares of the others would go up (Warren Buffet, Source)

Stocks within the index are weighted by the total market value of their outstanding shares. When ever stock prices change, the value of the index also changes.

A carry-trade is the borrowing of large amounts of money at one rate and using it to buy an asset that earns a higher rate of return. The profit is the difference between interest on loan and lease payments. What happens if the company that leases defaults? That happened to the Lehmann Brothers, when they has short term loans and gave out sub prime mortgages for 10-20 years and people started defaulting.

Determines how long a company can survive (in months) given their current Net Burn Rate. Cash Runway = Cash (and Cash Equivalents) – Net Burn Rate. For Startups, it can also be calculated as Cash Runway = Cash (and Cash Equivalents) / (Negative Free Cash Flow / 12)

An investor sells a put option on a stock they wouldn’t mind owning, while simultaneously setting aside enough cash to buy the stock if it’s assigned. If the stock falls, he buys it cheap with his secured cash. If it doesn’t, he‘ll get to keep the premium. He wins either way.

A company that can increase prices without harming demand. Especially during inflation.

Money owed within the year.

When a stock or whole index falls, bounces back a little and then falls even more. „Even a dead cat bounces one last time when it falls out of a window“

The opposite of a Golden Cross when a short-term moving average (e.g., 50-day MA) crosses below a long-term moving average (e.g., 200-day MA).

Goods are becoming cheaper, but do does your salary. Mortgage stays the same but you can’t pay it anymore. Banks foreclose. Real estate prices are down and banks can’t recoup, the go bankrupt. Investors in banks lose money. We are entering a depression: Mass unemployment, homelessness, very unhappy citizen. Politicians lose their jobs. That’s why they‘ll always chose inflation over deflation.

If a stock falls below $1 per share for longer than 6 months, it risks being delisted from the stock exchange. Possible solutions: 1) Improving business performance 2) Buybacks of own shares (needs high cash reserves) 3) Secure additional funding 4) M&A with a stronger company 5) Reverse Stock Split (only 40% survive longer than 5 years after that).

Futures, Options, Swaps, Forwards: instruments that derive from an underlying asset like stocks, indices, currencies, etc. The size of derivatives is about 20x the size of the whole world economy. Through derivatives, many large banks have a multiple in risk exposure compared to the money they have actually in store. It’s also totally unregulated for lobbying reasons.

Used to discount future returns to their present value. If the future return is $700 and I apply a 5% hurdle rate, it would be discounted to $578 in present money.

A teleconference (or webcast) by a public company discussing their financial results of a certain period, often accompanied by a press release. Earnings Calls are usually done quarterly and vary in their exact date.

Common stocks (should) grow in value, as long as they earn more than they pay out in dividends.  E.g.: Business earns 12%, pays out 8%, retains 4%. If it did this every year the stock value should increase with it’s book value at a rate of 4% compounded annually ¹. Don’t buy companies that need retained earnings to finance their status quo. Buy those that compound.

1. Buffetology – Nine Questions No. 5

Exponential Moving Average is a technical indicator that gives more weight to recent prices, thus making it react faster to changes than using the “Simple Moving Average” (all past prices).

ownership in an asset or company

A term for the number of shares of a company that aren’t restricted but available to the public.

Money left over after expenses and capital expenditure that a company can return to its shareholders.

A bullish technical indicator when the short-term moving average (50 days) of a stock crosses the long-term moving average (200 days), indicating a stronger upwards trend.Example: short-term MA: 105, while long-term MA: 101

Funds invested in government securities, such as U.S. Treasury bills, which are backed by the government and carry minimal risk.

Slang for „Dollar“ back when paper has been printed in green paint

The GDP is the total value of good and services a country or region produces in a certain time period.

Trying to find securities whose value will increase rapidly in the future. The upside potential is more dramatic, while in Value Investing it is more consistent.

High short interest is like dry brush in a forest — it doesn’t cause the fire, but when a spark (bad news) hits, it burns fast and uncontrollably (price declines even sharper than usual).

It represents the market’s expectations of the future volatility of an asset’s price, as implied by the prices of its options. When implied volatility increases, the expected price swings of the underlying asset are higher.

A term for the current price per share of a security that you have an option for, if the Strike Price is below it.

Strike Price < Share Price

There are currently about 69 industries in the U.S. stock market (2025). 69 industries grouped in 11 sectors

When the government prints more money, ppl can afford to pay more for the same goods. So the merchants will ask for more. The producers will also ask for more and so will the raw material suppliers. The result: more money won’t buy a larger amount of goods but the exact same. Ppl will fill richer when their house seems to have increased in price and they get paid more by their employers. In reality the numbers increased but the buying power remained the same. Therefore politicians will always chose inflation over deflation.

The lipstick effect is the hypothesis that when facing an economic crisis, consumers will be more willing to buy less costly luxury goods.

Money owed in >= 1 year. E.g.: to vendors, unpaid taxes, loans.

Moving Average Convergence Divergence: this technical indicator helps identify trends and reversals in price movement. It consists of 3 components: MACD Line (12-day EMA – 26-day EMA), Signal Line (9-day EMA of MACD Line) and MACD Histogram. When MACD line crosses above Signal Line = bullish momentum confirmed, if it crosses below = bearish momentum confirmed.

Margin debt is the amount of money borrowed by investors to purchase securities, using a margin account, which amplifies both potential gains and losses.
It’s gambling with borrowed money.

A stocks estimated intrinsic value in comparison to its current price per share. Current Stock Price / (intrinsic value/100) = Margin Of Safety (%). If the stock is trading at $6, but is estimated to be worth $12 than that’s a 50% Margin Of Safety.

Financial metrics comparing a company’s financial performance to similar companies in the same industry/ sector. Examples: P/E Ratio, EV/EBITDA, Price-To-Sales, Price-To-Book. Their goal is to analyze if a company is currently trading below or above the industry’s average ratio.

In the early 1980s Berkshire‘s net worth per share and price per share were about the same. In the late 1990s its price per share was double the net worth per share. If capital is allocated to net worth growth, the market valuation will grow disproportionately over time.

Having the assumption to being able to tell that something that has been rising will continue to rise. You can be successful in a bull market but this approach won’t help you know when to sell.

Treasury bills, commercial papers, certificates of deposit, and other short-term debt securities that provide liquidity and preserve capital while earning a modest return. Less risk, less reward as compared to stocks.

Technical indicator that makes price changes easier to identify over a time period. You sum the price of each day within 50 days and divide that number by 50. The Moving Average is usually compared to another longer or shorter Moving Average, like last 50 days to last 200 days.

A collective term for all kinds of ratios that compare a stock’s price to some fundamental number. <em>Example is P/E ratio</em>. Generally speaking the higher the multiple, the more expensive the stock. <em>Multiples are always highly dependent on context!</em>

The amount of money a (starting up) company spends each year to fund its growth. It can be used to calculate Cash Runway.

Amount of cash a company spends each month on operating expenses, minus any cash inflows: Net Burn Rate = Operating Expenses – Operating Income (or Cash Inflows)

Assets minus Liabilities = Net Worth (or „Shareholders Equity“). Can be found on a company‘s Balance Sheet.

A form of value investing where you buy when the total market of a company’s stock is less than it’s current assets (like cash receivables and inventories) exceed its total liabilities. In theory you could buy all the stock, liquidate the current assets, pay off the debt and end up with the business and some cash! It focuses totally on hard assets

About 50 large-cap stocks 1960s to 1970s, that were regarded super solid. They had a bull run in the 70s before dropping up to -90% in the early 80s after their popularity outshined their fundamentals.

Cash generated by a company’s normal business operations. Investing and financing excluded. Pretty much Net Income + Depreciation – Accounts Receivable – Accounts Payable

Give you the right (without any obligation) to buy a certain security at a specific price within a given timeframe.

Market Order: immediately at the next available price (Speed > Price)
Limit Order: you specify a price first, and it will be fulfilled once that condition is met (Price > Speed)
Stop Order: 1) Stop Market (next available price) | 2) Stop Limit (limit price or better) | 3) Trailing Stop (where ever it rises, amount x below that)
Source

A term for the current price per share of a security that you have an option for, if the Strike Price is above it.

Strike Price > Share Price

The Price-To-Earnings Ratio is a stock’s Price divided by Earnings-Per-Share. Share Price $30 / Net Income $2M = 15x. Trailing P/E is looking at historical data, while Forward P/E at sales predictions (new market, product, etc.?). A P/E of 10 means we are paying 10x the price of our share of the company’s profit. A rise in P/E ratio indicates that stock prices are rising faster than company earnings!

An Upside of +300% means that the current price per share will increase x4

PMs (…silver, gold, platinum, palladium, etc.) usually rise when the interest rates of “risk free” instruments such as Savings Accounts and Bonds drop. This particularly happens when the Fed lowers interest rates. Many investors will then move towards more risky instruments like stocks or PMs. Global bonds are ~ $200T while precious metals are only ~ $80B, so a small % of investors translates to a huge increase in a market 2,500x smaller.

The price you pay for an option. Usually only a tiny fraction of the actual security. You don’t buy the stock itself, you buy the right to buy the stock for a fixed price.

Buying a company and using its assets to borrow against and ultimately pay those off through the cash flow of the business (Source)

A rally is a short-term surge in stock prices. You could say that <em>if a stock jumps 5% in a week, that’s a rally. If it rises steadily for a year, that’s a bull market.</em>

If GDP declines for at least two consecutive quarters. Companies earn less and thus cut jobs, so unemployment rises. Consumers spend less. Stock Market falls due to uncertainty. Causes: high inflation (high prices), rising interest rates (borrowing becomes expensive), financial crises (bank failures, etc.), global events (wars, pandemics, etc.). The FED always cuts rates when there is recession.

Earnings after taxes / (total assets – total liabilities) If Total Assets are $10M – Total Liabilities $4M = Shareholders Equity $6M. Earnings after Taxes e.g. $1,98M / $6M = 33% (Return on Shareholders‘ Equity). The average for US corporations has been ~ 12% in the last 40 years ².

1. Buffetology – Nime Questions No.4

When a company divides it’s current shares, resulting in fewer (and more expensive) shares. A 1-for-5 would be the case if you had 5 shares of a company, but now are left with only one. Companies use this strategy to prevent getting delisted if their share prices will become < $1. The higher share price could be interesting for institutional, but is often suspicious to retail investors. The main problems are that reverse splits don’t fix the fundamental issues and declining stocks often keep falling even after a split.

Relative Strength Index measures how “overbought” a stock is on a scale from 0 – 100. > 70 = possible sell signal, < 30 = possible buy signal. Learn more.

The 2.000 smallest U.S. companies. Kind of the opposite of the S&P 500. Therefor often used as an indicator of the U.S. economy. Market Cap per company (ø): $3.65 B (31.12.24)

The 3.000 largest U.S. companies by market capitalization. Avg. market cap ~ $966 B (31.12.24). Represents ~ 98% of the American public equity market.

The 500 biggest US companies as tracked by “Standard & Poor”. Weighted according to the total market value of their outstanding shares.

A market change that is fundamental, significant and probably long lasting. 1978: before investors were only buying HQ assets, then they settled for LQ assets if they were cheap enough
According to Howard Mark there were a total of 3 Sea Changes in a period of 54 years.

A company offers more shares to the market at a fixed price (usually discounted) in a one-time event, to raise capital. This can cause a sharp drop in current share price due to dilution concerns.

It’s not always the whole stock market that crashes, sometimes it’s only a particular sector. E.g. Biotech in 2022: The biotech sector was overvalued in 2021 because of Covid (vaccine research), and when interest rates rose (from almost 0% to > 4%), funding dried up, and risk appetite of investors shrank, biotech stocks collapsed. While some high-quality companies survived, many smaller biotech firms struggled or shut down due to lack of funding.

There are currently 11 sectors in the U.S. stock market (2025). These 11 sectors include about 96 industries and 158 sub-industries.

Securities are financial instruments that represent an ownership position in a company (stocks, ETFs, etc.), a creditor relationship with a government or corporation (bonds), or rights to ownership as represented by an option.

It’s basically the collective term for anything you can invest in in the stock market.

If a company buys back it’s own shares, while earnings remain steady, earnings per share go up. This is a good indicator that a company is confident in its own future.

Indicator that can tell us how institutional investors feel about the future movements of a stock. The higher, the more they think the share price will go down, but the bigger the chance of a short squeeze if unexpected bullish catalysts appear. 5-15% = moderate, 15-25% = high, 25%+ = extremely high. In comparison: GME was 140%+ in Jan 2021

Borrowing a stock for $5, selling it to the market for $10, buying it back as soon as it falls to $5 again. You return it to the owner, who’s position is the same as before, while you made $5 in the process. Can only be done by institutional investors.

Special Purpose Acquisition Companies (also “blank check companies”), are shell corporations listed on a stock exchange. Their purpose is to M&A a private company to take it public without a regular IPO. Retail investors can buy these before any M&A took place, which is why they get referred to as “poor man’s private equity funds”. SPACS are closely related to bubbles.

If you put an experienced captain in a dinghy and less experienced captain in a speedboat, who you think is gonna win the race? It doesn’t matter how good management is if a business suffers from inherently poor economics ³.

1. Buffetology Ch. 19

Stagnant economic growth, high unemployment and high inflation all at the same time.

A free order (pre) placed with a broker to sell (or buy) a specific security, once it reaches a certain price.If you buy a share for $10, you immediately set a Stop-Loss-Order to automatically sell if it drops to $8

The price at which you can exercise an option (buy or sell the underlying asset).

Reduces export demand and thus US companies‘ earnings in foreign countries

Two consecutive quarters of negative GFP growth.

Non-fundamental factors, that is things unrelated to value that still affect supply and demand of securities. E.g. Forced sales on margin calls, or portfolio managers that need to buy because they get an inflow of money from their clients. In both cases there isn’t much regard for price.

Abbreviation of Federal Reserve, the central banking system of the USA. It was founded to deal with banking panics. The Fed in- or decreases the interest base rate

“The magnificent 7” are the seven biggest companies in the U.S. Accounted for ~ 33% of the entire S&P500 index (2024). They appear “range bound” for certain time periods, while occasionaly breaking out.

If a stock has a “thin float”, for example because 30% of it is shorted (borrowed and sold by investors betting on downfall), and trading volume is low…liquidity dries up. If negative news occur, longs might sell, causing even more shorts to enter, thus causing a “seller vacuum” where the price falls quickly. 

Treasury stock (or treasury shares) refers to shares that were originally issued and sold by a company but were later repurchased by that company from shareholders. Once repurchased, these shares are held by the company itself and are not considered outstanding, meaning they don’t have voting rights and don’t receive dividends.

Coming up with a security‘s current intrinsic value and buying when the price is lower than that. The focus lays on tangible factors like hard assets and cashflows. Intangibles like talents, fashions ans long term growth potential are given less weight.

„History shows that during times of turbulence, value beats growth“ – Rob Arnott (Research Affiliates)

How often a stock has been traded within a certain time period (like 1 day). If it’s the same day it’s an estimation, since final numbers can only be certain the next day. Tends to be higher on opening-/ closing-times and on Monday and Friday.

Volume means liquidity and the more volume in any price move, the more strength it has

High volume stocks trade in the tens to hundreds of millions per day (example: SPY).

A technical analysis method in 4 market cycles: accumulation, markup, distribution, markdown (more here)

An historically reliable market indicator. When inverted, it signals an economic downturn. Usually 10-year treasury yields have a higher interest rate than 2-year yields, because of the risk associated with time. When investors grow pessimistic they buy more long-term, driving those yields lower than short-terms.